Greenspan Shrugged

Now into his fourth term as Federal Reserve chairman, Alan Greenspan holds unparalleled power, despite a history of idealism that started with his worship of Ayn Rand. But Greenspan's official record, as he rose to near-mystical pre-eminence, shows how Washington can compromise even the most passionate of principles.

The annual White House Correspondents' Dinner is a feast of sycophancy and pretended satire, and last April's gathering was no exception. Only one real shaft was launched all evening, when the night's designated jester, Jay Leno, jutted himself toward Hillary Clinton and inquired, “What's it like being married to the most powerful man in the world? Let's ask Andrea Mitchell.” Everybody laughed. Nobody missed the point. This country is in awe of a mousy, bespectacled accountant with enigmatic powers—America's least-likely celebrity.

Alan Greenspan, chairman of the Federal Reserve and husband of the divine Andrea, is sometimes idly referred to as “the second most powerful man in America.” But he's quietly approaching his fifth term of office. And in that capacity he probably does possess more power than any president. A nod from him about the interest rate and global markets quiver along every nerve and ganglion. And therefore, since most of foreign policy is now driven by economics, and most wars are fought largely by economic means, he disposes of more power than any 12 heads of government of any remotely comparable countries. He can't on his own initiative reach for the thermonuclear button, but then, outside the realm of Hollywood, neither can the president. He doesn't have to waste any time at ceremonial events. He is obliged to report to Congress only twice a year, at formal occasions where he is received with the deference that was once accorded the Emperor of Japan. Fantasies about the mystical capacities of Greenspan are legion: one of the many whole-cloth journalistic inventions by The New Republic's Stephen Glass (before he was caught) concerned a Wall Street investment house which kept an empty office as a Greenspan “shrine,” complete with fetishes and relics and memorabilia. Putative brokers were quoted, saying that they actually prayed to Greenspan and used a software program known as “The Talmud of the Federal Reserve.” The article escaped exposure because, after all, it might have been true. And Greenspan has achieved name recognition of a kind. No less a person than the used-and-scorned Gennifer Flowers once told Larry King, “I think truly that credit should go to Alan Greenspan ... this was already in place before Bill—the upswing of the economy.”

In the first presidential debate of the election just past, both candidates were asked what they would do in an economic or financial emergency. George Bush replied that “what I would do, first and foremost, is I would get in touch with the Federal Reserve chairman, Alan Greenspan.” Seeking to one-up him, Al Gore boasted of how he had already been in touch with Greenspan, on the Mexican peso crisis. It was generous of Bush in the circumstances: Alan Greenspan and Robert Rubin (until recently the Treasury secretary) have carried the Clinton-Gore economy, and (though he resented being exploited in this way without warning, and would not allow the tactic to be repeated) Greenspan himself was suddenly given a seat between Hillary Clinton and Tipper Gore for Clinton's 1993 State of the Union address. The cameras found him looking like a talisman for Clintonomics. If he walked down the street, it wouldn't surprise me to see sane citizens touching him for luck. Good times often make people more, not less, superstitious.

One way of defining the real and nonlegendary potency of the Federal Reserve is to call it “the banker's bank.” As the ultimate lender, it can exert regulatory influence on the loans made by lesser institutions. Thus, when the Asian “tiger economies” went into a serial stall-out in the summer of 1997, Alan Greenspan was able to induce American lenders to extend credit, and thus to carry the wounded South Koreans and others across a shaky bridge to temporary recovery. Haunted by the Furies, the ancient Greeks would allude to them ingratiatingly as “the kindly ones,” in case they were listening. Confronted by the awesome strength of the Greenspan HQ, people refer with cozy familiarity to “the Fed.”

Ideologically speaking, the man who holds the keys to this machinery is too extreme to get himself elected to anything. His ostensible political and social convictions are miles to the right of any known center. Yet it is probable that he helped elect Jimmy Carter and practically certain that he helped elect Bill Clinton. In addition:

He was once investigated by the F.B.I. to determine if he was gay.

He supports an ideological cult group that proclaims its militant atheism, especially its contempt for Christianity.

His intellectual guru Ayn Rand was a proponent of a woman's unconditional right to abortion.

He helped abolish the military draft.

He once took a large fee from a savings-and-loan baron who later did time in jail.

Some of the above accomplishments make one warm to him more, and some less. Probably the sweetest thing about the banker's banker is his past as a jazz musician. Back in the 40s, he was a section player with Henry Jerome and His Orchestra, a combo which gamely made the transition from swing to bebop, Greenspan's saxophone and clarinet supplying much of the tone. Another key member of the group was Leonard Garment, later to be Richard Nixon's attorney at the time of Watergate; his tastes lay more with the saxophone. It's touching to think of these two leathery Washington veterans having got their start as boys in the band. (I learned this, and much besides, from an excellent new biography by Justin Martin, Greenspan: The Man Behind Money, published by Perseus.)

Greenspan didn't look very jazzy the first time I met him. He looked as if he'd be the easiest man in the world to persuade, if you were selling the proposition that everything is a different shade of gray. He was standing all alone, while moodily ingesting a complicated canapé, at an A-list book party thrown for Strobe Talbott and Michael Beschloss at the Sheraton-Carlton in D.C. And I thought, Well, now's my chance. I had always wanted to know whether he still admired the work of Ayn Rand. After all, the hero of one of her novels—Howard Roark in The Fountainhead—dynamites his own building rather than submit to the leveling pressure of lesser architects. And the hero of another—John Galt in Atlas Shrugged—organizes the rich and gifted to go on strike against an undeserving and servile society. Did these deep tides of passion still move the slight and stooped figure of Chairman Greenspan? Did he have moments, on slow days at the Federal Reserve building, of fantasizing its heavy columns and porticoes as they flew apart in shards? Did he ever think, Enough with this whining rabble! Today I—yes, I and my mighty interest rate—will make them beg for forgiveness!? I decided to move in before he could swallow.

He didn't seem to mind the intrusion, or the question (which I phrased more guardedly than that). “Not only was I a strong supporter of Ayn Rand,” he told me, “but I was married to the best friend of Barbara Branden, wife of Nathaniel. You could say that I was of the inner circle of the group.” Quitting the past tense, he added, “And I wouldn't change anything. I still think she was right, and I have learned a great deal from her.”

I was enough of a Rand buff to recognize the key name here. Nathaniel Blumenthal and Barbara Weid-man were two Canadians. (For some reason, 9 out of 10 of the “objectivists” I have met are from Winnipeg.) They fell for each other, but they fell for Miss Rand even more, so much so that when they married they adopted the family name Branden. Nathaniel, who is now quite a successful personal-growth merchant in Los Angeles, once told me that the name is an anagram for “Ben-Rand” (as in “son of” ). This gives you an idea of how much loyalty was expected by the charismatic lady who formed the center of the circle, or “the Collective,” as it was counterintuitively called. Barbara Branden's best chum from Winnipeg was named Joan Mitchell, and it was she who became the first Mrs. Greenspan after meeting him on a blind date. The couple parted after just 10 months; true to the bond of the Collective, Ms. Mitchell later wed Nathaniel Branden's cousin. It was also the first Mrs. Greenspan who received a visit from the F.B.I. 20 years later, when Greenspan was nominated to chair Nixon's Council of Economic Advisors. Just the facts, ma'am, about your ex ... Married only 10 months and a bachelor ever since ... ? She was able to reassure the worried gumshoes that his economic orthodoxy had its sexual counterpart. (Now that Greenspan has married another Ms. Mitchell, the thorny problem of Gays in the Federal Reserve has been laid to rest.)

Illicit sex of another sort was to play a role in nudging Greenspan toward Washington. In May 1968, while the rest of the world watched revolution in Paris, the Rand Collective exploded like a Howard Roark building site. Nathaniel Branden, it turned out, had been having a torrential affair with Rand, of which both their spouses knew and approved. But then Rand discovered that Branden—“Ben-Rand” himself—was having yet another sizzling relationship with a much younger woman. In an epic fury, she covered Branden's face with weals, excommunicated him from the cult, and put a 20-year curse on his penis. (The scene is rendered to best effect in the Showtime movie The Passion of Ayn Rand, with the grande dame played by Helen Mirren.) Poor Greenspan, who hadn't been part of this votive and orgasmic side of the club's activity, went off into private practice and then, introduced by his old swing-and-bop partner Len Garment, to Nixon's Washington. His greatest achievement in that mediocre period was to serve on the Gates Commission on the military draft. With Milton Friedman, he persuaded the other members that the draft was an affront to individual liberty, as well as a form of taxation without representation, and should be scrapped and replaced by an all-volunteer military. Nixon accepted the recommendation. Thus two free-market libertarians completed the work of the card burners and the New Left, and thus an ardent foe of state intervention began his march toward the job of regulator in chief.

In the unpropitious month of July 1974, Nixon nominated Greenspan to be chairman of the president's Council of Economic Advisors. He survived this disgrace and saw his nomination carried to term by Gerald Ford. Those were the days when the word “stagflation” had a totemic character. Faced with an election challenge from the peanut fields of Georgia, Ford took Greenspan's advice and avoided the popular solution of tax cuts and other booster shots. He was told that this would lead to bad economic news before the election, but brighter tidings after it. He lost. He still maintains that he lost because he did the brave, manly, principled thing (though I think the Nixon pardon may have had something to do with it). Greenspan went back to private practice on Wall Street.

It had been Nathaniel Branden, in his days as Rand's chief disciple, who recruited Greenspan to the cause of economic fundamentalism and set him to work on her magazine, The Objectivist. Some initial sales resistance had to be overcome on both sides; Greenspan came from a New Deal-New York Jewish background, while Rand, who liked her men husky and domineering, complained that the potential recruit more closely resembled, not to mince words, “an undertaker.” Funereal as he looked (and still looks), there was still some jazz in there somewhere, and he was able to write about the dismal questions of economics in an intelligible way. With magnificent condescension, Rand included three Greenspan contributions in her collection of essays Capitalism: The Unknown Ideal, though without crediting him on the cover. If you look up this volume today, you can see the future keeper of our financial destiny as he makes the case for the gold standard, while shredding the case for anti-trust and consumer-protection laws. Here's an excerpt from his argument about the latter, in a piece grandly entitled “The Assault on Integrity”:

It is precisely the “greed” of the businessman or, more appropriately, his profit-seeking, which is the unexcelled protector of the consumer.… Reputation, in an unregulated economy, is thus a major competitive tool. Builders who have acquired a reputation for top quality construction take the market away from their less scrupulous or less conscientious competitors. The most reputable securities dealers get the bulk of the commission business.

I reread that in the week that Congress held hearings on Firestone tires, synonym for quality. Not content with the line taken by Adam Smith, who neutrally opined that it was “not from the benevolence” of the businessman, but from his self-interest, that we enjoyed our range of choices, the objectivists insisted that capitalism had to be seen as morally superior also. This is why Alan Greenspan's most salient public and private fiasco is so significant.

In 1985 he was paid tens of thousands of dollars by Charles Keating, of Lincoln Savings & Loan in Irvine, California. The payment was in exchange for abject cheerleading in which Greenspan testified to the health and probity of Keating's enterprise, describing it to California thrift regulators as “seasoned and expert,” having “effectively restored the association to a vibrant and healthy state, with a strong net worth position, largely through the expert selection of sound and profitable direct investments.” Even at that moment, Keating was hopelessly overextended with unsecured junk bonds, and was soon desperately heaping soft-money donations into senatorial laps. One of his memos to bond salesmen read like an injunction from John Galt himself. “Remember,” it said, “the weak, meek and ignorant are always good targets.” But in April 1989, having had a good run in a deregulated market for suckers, he filed for bankruptcy. The money vanished like fairy gold, and the taxpayer had to eat a $3.4 billion bill.

By that time, Greenspan had been confirmed as chairman of the Federal Reserve (though he wasn't asked any serious Keating questions during his Senate confirmation). And, as Justin Martin points out, he had to deal with the “credit crunch” provoked in part by the implosion of the thrift industry. His bankerly response was to decline a lowering of the interest rate, thereby infuriating President Bush's Treasury Department, which for a mixture of economic and political motives wanted it to come down. The subsequent recession ended when the rate was belatedly eased; many are the Republicans in today's Washington who blame the Clinton presidency on Alan Greenspan. “I re-appointed him, and he disappointed me,” said Bush coldly. An irony of history: the Bill Clinton who took credit for the long boom of the 1990s was the man who dodged the draft that Greenspan helped to end, and who profited from an upturn that Greenspan had fatally postponed. So should our current golden age be indirectly credited to the goldbug Greenspan himself, or to the tempestuous libido of Ayn Rand, or perhaps to the once jailed Charles Keating?

Greenspan's brush with amoral or immoral capitalism in the Keating case may also have caused him to make his most celebrated, not to say notorious, observation. At a reception held in his honor by the American Enterprise Institute on December 5, 1996, he delivered a speech which, suddenly breaking with the traditions of platitude, invoked the recent implosion of the economy of Japan. Inflated stocks, overvalued real estate, bubble banks—the S&L-nightmare syndrome all over again, though Greenspan didn't choose to put it like that. He put it like this: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions?”

If Greenspan looked like an undertaker when he met Ayn Rand, he looked even more like one on the morning after the words “irrational exuberance” had been bounced off a few satellites. The market on Wall Street had closed, but the Dow still fell 145 points when it reopened, the exchanges from Sydney to London having taken a pasting in the meantime.

In his spirited and brilliant book, Devil Take the Hindmost: A History of Financial Speculation (which has some harsh words for Green-span's stewardship), the British author Edward Chancellor compares all past financial “bubbles” to superstitions and acts of faith. But the striking thing about objectivism, and the thing that distinguishes it from the mainstream of American conservatism, is exactly its disgust with religion. Belief in God is equated with mental slavery. Ayn Rand wrote two especially vivid attacks on the Pope, in one of which she said that “abortion is a moral right—which should be left to the sole discretion of the woman involved; morally, nothing other than her wish in the matter is to be considered.” In the second essay, “Requiem for Man,” she wrote off Pope Paul VI's encyclical on economics, concluding that “the Catholic Church is deserting Western civilization and calling upon the barbarian hordes to devour the achievements of man's mind.” The author of these words was invited to the Cabinet Room for Greenspan's first swearing-in, the nearest she ever came to the seat of pure power. (She died on March 6, 1982— Greenspan's 56th birthday.)